It might be a bit of an understatement to say that the trade war between the U.S. and China has brought a lot of uncertainty to the market.
And while the latter half of 2018 was rough for the broader stock market, Chinese stocks were under more intense selling pressure and are now significantly cheaper than they were this time last year.
But the negative sentiment seems to be waning as the two countries work toward a resolution, and as a result, Chinese stocks are beginning to show life again.
The two Chinese stocks discussed below both offer promising futures, and both could see double-digit returns this year.
iQiyi (NASDAQ: IQ)
iQiyi (NASDAQ: IQ) is in a business that has never been as popular as it is right now. IQ is often referred to as the “Netflix of China,” and the Chinese streaming giant has been growing hand over fist since its public debut.
IQ is the dominant player in mainland China, a country where it’s near impossible for outsiders to launch a streaming service, so there’s a moat around this business. It is also growing the most precisely where you would want to see it make the strongest progress.
The bulk of its 500 million monthly active users use IQ’s free ad-supported platform. However, in Q3 last year, the company saw a 78% surge in membership revenues demonstrating that it has been successful in turning users of its free ad-supported platform into subscription-paying customers.
And that increase in membership revenues came from the number of premium customers rising 89% last year to 80.7 million. Comparatively, Netflix’s (NASDAQ: NFLX) number of paying subscribers grew by just 25% over the past year – a far cry from iQiyi’s massive growth in paying customers.
The business continues to post large deficits, however, and analysts don’t expect it to reach profitability until 2022 at the earliest. But that doesn’t make this a bad investment.
In the streaming business, content is the biggest growth driver. Much like Netflix, iQiyi has spent a chunk of money to develop binge-worthy content. And if subscriber growth is any indication, that investment in original content is paying off.
The stock ended last year down nearly -70% after reaching a high in mid-June 2018. But so far this year, shares are up nearly 48%. The average analyst price target for IQ is $28.17, suggesting possible upside of 28% over the next twelve months.
JD.Com (NASDAQ: JD)
Between trade tensions between the U.S. and China, troubling headlines about JD’s founder and CEO, and worries about a slowing Chinese economy, 2018 was a difficult year for the stock. But so far in 2019, things have been looking up and the stock is now up just over 16% year-to-date.
But while these issues—especially the slowing Chinese economy—could continue to impact the stock, there’s reason to be positive on JD as it’s expected the company’s profit growth will rebound this year.
And even if growth in the country continues to slow, the Chinese e-commerce market will still be a long-term growth opportunity, which was especially evident in JD’s last quarter where it reported a 25% increase in revenue and a 49% increase in revenue from its higher-margin services segment.
JD competes heavily with Alibaba (NYSE: BABA) in China’s already massive and growing e-commerce market. When BABA reported its quarterly earnings on January 30, the stock jumped nearly 7% the same day. Thus, we could see a similar positive reaction if investors like what they see when JD reports its next earnings on March 1.
It’s also possible shares could retest the low of $19.21 that was reached at the end of November, forming a solid base, before heading higher. Either way, JD is one of the most promising stocks out of China and could deliver fantastic returns for those investors willing to wait it out for the long haul.
The average twelve-month price target for JD is $32.53, indicating possible upside of 33.72%.